After surge, stocks plunge

Buyers drive Dow up 441 early; late sell-off leads to 204.91 loss

Alex Veiga, Associated Press

Published 9:44 pm, Tuesday, August 25, 2015

A rally in U.S. stocks evaporated in the minutes before the closing bell Tuesday, sending the Dow Jones industrial average down more than 200 points and extending Wall Street's losing streak to six days.

For most of the day, it appeared that the market had shaken off some of its worries about the slowdown in China, and at one point the Dow was up by as much as 441. But then sell orders began pouring in in the last 15 minutes of trading.

The Dow ended the day with a loss of 204.91 points, or 1.3 percent, at 15,666.44. The Standard & Poor's 500 index fell 25.59 points, or 1.4 percent, to 1,867.62. The Nasdaq composite declined 19.76 points, or 0.4 percent, to 4,506.49.

The rally came after China lowered interest rates to try to boost the world's second-biggest economy. Other world markets surged on the news out of Beijing, and for a while, it appeared that U.S. stocks would follow suit and that the global sell-off might stop.

"The return to a more traditional stimulus from China helped excite many investors," said Jeff Kleintop, chief global investment strategist at Charles Schwab. "But, in fact, this is more likely the start of a longer-term period of volatility."

The three major U.S. indexes have now lost ground six days in a row, with the Dow falling about 1,900 points over that period.

The 10 sectors in the S&P 500 declined, with utilities falling the most, 3.2 percent. The sector is down 5.8 percent this year. It is also undergoing what Wall Street calls a "correction" — a drop of at least 10 percent from its most recent high.

China cut its interest rates for the fifth time in nine months in a renewed effort to shore up economic growth. The central bank also increased the amount of money available for lending by reducing the reserves banks are required to hold.

Analysts said that while Tuesday's actions by China may calm the stock market turmoil for now, the country faces a long period of uncertainty. "The Chinese economy is going to be on this bumpy road for a while, and it will have ebbs and flows that will no doubt have a serious impact on the global economy," said Kamel Mellahi, professor at the Warwick Business School. "What we are seeing now is a dress rehearsal of things to come."

Investors are trying to assess whether there is a broader and deeper global economic slowdown brewing, given recent discouraging economic data out of China and the government's surprise devaluation of its currency, the yuan, this month.

A slowdown in China has the potential to significantly crimp demand for oil and other commodities, a ripple effect that could dampen global economic growth.

Beyond China, traders are waiting for clarity from the Federal Reserve, which has signaled it could begin raising its key interest rate from near zero for the first time in nearly a decade as early as this year. The Fed isn't expected to deliver a policy update until it wraps its next meeting of policymakers Sept. 17.

European markets recovered almost all their losses from Monday. Germany's DAX jumped 5 percent, while France's CAC-40 rose 4.1 percent. The FTSE 100 index of leading British shares gained 3.1 percent.

China's central bank took action after the country's main stock index closed sharply lower for a fourth day. The Shanghai stock index slumped 7.6 percent, on top of Monday's 8.5 percent loss.